Facebook revenue growth slows, costs weigh on profit

Facebook Inc posted its slowest growth in quarterly revenue in two years and higher spending on research and development ate into profits.

Shares of the world's largest Internet social network fell 2 percent in after-market trading on Wednesday.

Facebook has warned of heavy investments in 2015 as it steps up efforts to expand a collection of products that include messaging service WhatsApp, photo-sharing service Instagram and virtual reality headset maker Oculus Rift.

As a result, Facebook's operating expenses rose 83 percent in the first quarter as R&D costs jumped 133 percent and marketing and sales spending nearly doubled.

However, Facebook said monthly active users grew 13 percent over a year ago to 1.44 billion, with 87 percent of them accessing its service on smartphones and other mobile devices.

"It's a generally solid quarter. The trends are all going in the right direction. The cost rise is one thing that can derail this story," said Macquarie Research analyst Ben Schachter.

"The question is, can they keep costs under control and what will be the new revenue streams around video, Instagram and virtual reality around Oculus?" he said.

The company offered assurances that it has a handle on spending, saying it now expects expenses to increase by about 55 percent to 65 percent this year, a slight decrease at the top end from its previous forecast of 55 percent to 70 percent.

It said foreign exchange rates due to the strong U.S. dollar would likely cut revenue in the current quarter by more than the 10 percent it saw in the last quarter.

Facebook's net income attributable to stockholders fell to $509 million, or 18 cents per share, in the three months ended March 31, from $639 million, or 25 cents per share, a year earlier.

Excluding items, the company earned 42 cents per share.

Facebook said revenue rose to $3.54 billion from $2.50 billion. Revenue from advertising was $3.32 billion, up 46 percent from a year earlier.

Analysts on average had expected a profit of 40 cents per share and revenue of $3.56 billion.

(Reporting by Abhirup Roy in Bengaluru, Yasmeen Abutaleb in New York and Bill Rigby in San Francisco; Editing by Saumyadeb Chakrabarty, Richard Chang and Andrew Hay)

A smartphone user shows the Facebook application on his phone in the central Bosnian town of Zenica, in this photo illustration, May 2, 2013.
REUTERS/Dado Ruvic

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